Warren Buffett’s 9 money-making rules to stick to
Berkshire Hathaway Chairman Warren Buffett, one of the most famous investors, still holds on to his motto forever that holding on and being patient is the key to successful investing.
The Oracle of Omaha is also known for investments that include safe dividend stocks – stocks that generate returns, which he then pours back into his investments – and the power of value investing.
Many investors revere his advice, which is not surprising. At 93, his fortune stands at 121 billion dollars, according to the Bloomberg Billionaires Index. Here are some of his most valuable tips.
“The first rule of investing is don’t lose. The second rule of investing is, don’t forget the first rule.”
Buffett said the above in a TV interview. He went on to explain that you don’t need to be a genius in the investment industry, but you do need what he considers a “stable” personality.
“Our favorite period is forever”
Jay Zigmont – PhD, CFP and founder of Childfree Wealth – said he is “with Buffett on that one.”
“There is an older study by Fidelity that found the best investors were dead,” Zigmont said. “The thing about dead investors is that they just leave their accounts as they are and invest for the long run. Without knowing it, dead investors follow Buffett’s advice to hold stocks forever.”
As for the living, what we can learn is that the concept of simple, passive, long-term investments works,” Zigmont added.
“Jack Bogle – Vanguard’s founder – put it this way: Don’t do anything, just stand there! Most people would be best off choosing ETFs that reflect the market as a whole, buying them and not selling them unless they need the money. Every time you buy/sell, you incur costs and can lose focus on long-term investments”, allow Zigmont.
Never bet against America
In his 2020 shareholder letter, Buffet wrote to never bet “against America”. He explained that although much of the finance, media, government and technology is located in coastal areas, it is easy to overlook the many miracles that occur in Central America.
“In its short 232 years of existence, however, there has been no incubator for unlocking human potential like America. Despite some serious interruptions, our country’s economic progress has been breathtaking. Beyond that, we retain our constitutional aspiration to become ‘a more perfect union’,” he wrote. “Progress on this front has been slow, uneven and often disappointing. However, we have moved forward and will continue to do so. Our unwavering conclusion: never bet against America.”
“If you’re not willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”
This quote encapsulates Buffett’s long-term perspective, as one of his most famous qualities is patience and perseverance.
He wrote this in his 1996 letter to shareholders, where he said: “Your goal as an investor should simply be to buy, at a rational price, a stake in an easily understood business whose earnings are virtually certain to be substantially higher 5, 10 and 20 years from now. Over time, you will find only a few companies that meet these standards – so when you see one that qualifies, you should buy a meaningful amount of shares.”
He added that investors should also resist the temptation to deviate from these guidelines.
Be greedy when others are afraid and afraid when others are greedy.
This quote has been repeated countless times by Buffett, who first wrote it in his letter to shareholders in 2004.
As he explained in the letter: “Over the past 35 years, American companies have delivered amazing results. It should, therefore, have been easy for investors to earn juicy returns: All they had to do was push back corporate America in a diversified, low-cost way. An index fund that they never touched would have done the job. Instead, many investors have had experiences ranging from mediocre to disastrous.”
He said this stems from several issues: high costs, usually because investors traded excessively or spent way too much on investment management; portfolio decisions based on tips and fads rather than on thoughtful, quantified evaluation of companies; and a start-and-stop attitude to the market characterized by untimely entries (after an advance has been underway for a long time) and exits (after periods of stagnation or decline).
“Investors should remember that excitement and spending are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful.”he wrote.
Buy wonderful companies at a reasonable price
Buffett explained in a speech that he had learned to “look around for cheap things” and buy on a quantitative basis. While he said he has been doing this for years, he explained that this is not a way to make money. Therefore, he would now rather “buy a wonderful company at a fair price, than a fair company at a wonderful price.”
Only buy shares that you can understand
“I have an old-fashioned belief that I should only expect to make money on things that I understand,” Buffett once said. What Buffett means is that while you don’t need to understand the intricacies of what a product is or how it works, you do need to understand what the economics of the business will look like in decades.
Great opportunities in life must be seized
He argued that one of the biggest mistakes he made, which cost Berkshire a lot of money, was not taking an opportunity that was in front of him.
The biggest mistakes he said, by far, “are errors of omission and not commission. The things I knew enough to do, they were within my competence, and I sucked my thumb.”
“The key to investing is not to assess how much an industry will impact society, or how much it will grow, but rather to determine the competitive advantage of a particular company and, above all, the sustainability of that advantage.”
According to Nathan Brunner, CEO of Salarship, Buffett’s quote can be distilled into a simple but profound mantra for investors: “Invest in companies, not industries.”
“For example, there has been a lot of hype around AI technology recently. The mistake I see many investors make is that they want to invest in any company as long as it is AI-related, says Brunner. “It’s a really bad investment strategy because it doesn’t take into account the nuances and differences between individual companies in the AI sector.”
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